Cheltenham & Gloucester plc v Krausz [1997] 1 WLR 1558

Key point

  • If there is negative equity, the court cannot suspend possession under s36 AJA 1970 to allow the mortgagor make an application for court-ordered sale under s91 LPA 1925


  • Mortgagee (C) had warrant for possession
  • Mortgagor (D) applied for order suspending the warrant for possession an application for a s91(2) LPA 1925 court ordered sale to a charity

Held (Court of Appeal)

  • The order of suspension was not granted as D had negative equity in the property

Phillips LJ

  • Until Palk’s case, it was the practice of the Chancery court only to entertain an application for sale by the mortgagor the property had positive equity
  • Palk’s case established, for the first time, that the court has power under s91(2) LPA 1925 to make an order for sale on the application of a mortgagor, even when there is negative equity
  • But s36 AJA 1970 does not empower the court to suspend possession in order to permit the mortgagor to sell the mortgaged premises where there is negative equity, it can only do so where there is positive equity the court can do so

Millet LJ

  • Palk’s case does not support the making of a sale order where the mortgagee is taking active steps to obtain possession and sale
  • It also does not support the giving of the power of sale to the mortgagor in a case where there is negative equity
  • Where there is negative equity it is the mortgagee who is likely to have the greater incentive to obtain the best price and the quickest sale


  • A mortgagor or borrower has positive equity in his property if: market price of the property > outstanding debt
  • He has negative equity if: market price of the property < outstanding debt